Having secured the necessary financing to what executive v-p of corporate development and affairs and chief legal officer Mike Miller said will give Barnes & Noble Education the flexibility to continue to revamp its business for fiscal 2024, the company has begun what could be one of the most pivotal school years in its history. In July, B&NE won approval from lenders to rework its financing agreements to provide it with additional liquidity after posting another disappointing financial performance in the fiscal year ended Apr. 29, 2023, in which the company had a net loss of $90.1 million, up from $61.6 million in fiscal 2023.
In a conference call with analysts in August, executives emphasized that the future of B&NE is having more schools and students use its First Day Complete (FDC) program—which provides students with all the course materials they need, included as a fee or as part of tuition—as well as increasing sales of general merchandise. Those increases are key to countering what executives acknowledged is the steady decline of what B&NE calls sales of “à la carte materials.” And in keeping with its top priority to return B&NE to profitability, executives said they will continue to close unprofitable stores. The company finished fiscal 2023 with a total of 1,366 stores, down from 1,427 in fiscal 2022. The company also initiated a number of cost-cutting moves in the year and sold off its digital students solution business, actions that reduced its full-time workforce from 3,000 employees in fiscal 2022 to 2,650 in fiscal 2023.
In fiscal 2023, sales in B&NE’s retail segment, which accounted for about 97% of total company revenue, increased 3.6% to $1.5 billion, driven by a 48% increase in FDC and general merchandise sales, which offset a 9.4% decline in the traditional à la carte sales. For the 2023 fall semester, 157 campus stores have committed to using FDC, up from 116 in 2022, and B&NE expects to continue to move many of its stores to the FDC model so that by the school year beginning in fall 2024 the majority of the schools it works with will use that model. With the increase in schools participating in FDC, B&NE expects that FDC “will approach the majority of course material revenue” in fiscal 2024, up from 33% in fiscal 2023.
B&NE’s emphasis on promoting FDC, combined with the decline in the sales of traditional textbooks and the closing of stores, prompted one analyst to ask during a conference call whether “this is basically the last year you’re going to have à la carte required materials in a significant way?” Executive v-p retail and president of Barnes & Noble College, Jonathan Shar, insisted that B&NE “will continue to support stores and the à la carte course material model.” Shar added that the industry is moving quickly to the FDC model, explaining that B&NE is having discussions with profitable stores with strong general merchandising businesses who nevertheless are interested in the FDC approach. Shar said the school-wide flat-rate approach is having a positive impact on all parts of the higher education ecosystem—“institutions, ourselves, publishers, and most importantly, the students.”
According to the National Association of College Stores’ newest “Student Watch 2023” report, the FDC approach (which goes by a lot of names—NACS calls it an “equitable access”or “flat-rate” course material pricing model) has been growing in popularity. Its recent “Student Watch” survey found that 44% of students in the 2022–2023 school year acquired their course materials that way, up from 39% in the 2021–2022 school year. NACS administrators believe the school-wide model will continue to grow, particularly if educational institutions and store operators can successfully roll course material costs into enrollment, presenting a more efficient method for students to buy materials.
The changing role of the college store won’t have any impact on retail trade sales, according to Richard Hershman, v-p of government relations at NACS, since trade book sections have been in decline for decades. Still, certain trade titles remain popular, particularly in such categories as anthologies, which are regularly adopted by professors.
The ongoing movement to school-wide programs like FDC is altering the role of the college store, Hershman said, in particular by strengthening the academic support mission of college stores. Even if retail sales of traditional materials continue to decline, Hershman said, there is still plenty for college stores to do in a new environment, including managing the entire procurement and delivery process. “They’ve been writing obituaries about college stores for a long time, but they still have lots of value,” he said.
B&NE sure hopes that is the case. If all goes according to plan, Miller expects that total revenue in fiscal 2024 for B&NE will be “slightly higher” than it was in fiscal 2023, driven by the growth of FDC and general merchandise, offset by declines in an à la carte course materials. The company expects fiscal 2024 non-GAAP adjusted EBITDA to be approximately $40 million, up from a loss of $8.2 million in fiscal 2023. The first indication of how B&NE is doing will come September 6, when it is set to report first quarter results.
